Trade war feared from US action

China urges US to obey WTO rules: Ministry of Commerce

A possible US investigation into China's trade practices may heighten friction and eventually lead to a "trade war," warned Chinese experts.

The Trump administration said on Saturday that President Donald Trump on Monday will ask on Monday the US trade representative to determine whether to investigate China's trade practices under Section 301 of the Trade Act, but they declined to say when the trade representative's decision would be made, the Xinhua News Agency reported.

If Robert Lighthizer decides to go ahead with an investigation, the US would first consult with China, and the probe could take as long as a year, Xinhua quoted senior Trump administration officials as saying.

Reuters reported that Lighthizer will determine if "any Chinese law, policy, practice or action is unreasonable or discriminatory, and may be harming American intellectual property, innovation and technology."

"This may worsen trade friction between the two countries and jeopardize the results of the first comprehensive economic dialogue. If the US continues to ignore their joint efforts and take substantial action, it may prompt China to retaliate," Huo Jianguo, vice chairman of the China Society for WTO Studies, told the Global Times on Sunday.

As part of the US-China 100-Day Action plan, US beef officially returned to the Chinese market on June 30 after a 13-year hiatus. During the first China-US Comprehensive Economic Dialogue in July, the US said the two countries have reached an agreement on inspection and quarantine protocols for US rice exports to China.

Experts noted that the US investigation would not target a specific product, but could be a probe into China's subsidies to companies or intellectual property issues. The probe's impact depends on the final results.

Greater friction?

"It's not a surprise that Trump is taking action against China on trade issue. The Sino-US trade imbalance means China (which enjoys trade surplus) will encounter a lot of trade friction with the US during Trump's presidency," Jin Canrong, associate dean of the Department of International Studies at the Renmin University of China, told the Global Times.

In 2016, the US had an overall trade deficit for goods of $502 billion, with its biggest bilateral trade deficit with China at $347 billion.

"If the US uses Section 301 to pressure China, countries in China's export chain, including the US, Japan, South Korea, would be affected and might see a greater impact than Chinese companies," Liu Ligang, chief economist for China at Citigroup Inc, wrote in the China Economic Herald on Saturday.

On intellectual property, trade in high technology products (communication products excluded) only accounts for eight percent of total Sino-US trade and China has been absorbing a trade deficit with the US on high-tech products since 2011. Therefore, the restrictions can only do harm to US interests, Liu said, warning that the restrictions may lead to a "trade war."

Huo added that China could fight back with countermeasures.

He Weiwen, a senior fellow at the Center for China and Globalization, suggested that China use WTO rules to seek arbitration.

Section 301, which was passed in 1974 and used extensively in the 1980s and early 1990s, would allow the US president to unilaterally impose tariffs or other trade restrictions against other countries. But the US has rarely used that provision since the establishment of the WTO in 1995.

Michael Froman, the US trade representative under the Obama administration, has also warned that the US could face retaliation if the country moves away from resolving trade disputes through the WTO by taking unilateral action, Xinhua reported.

Stick to WTO rules

Although Trump has linked the US trade deficit with China to the Korean Peninsula issue, an administration official told Reuters that the North Korean issue and the potential trade probe were "totally unrelated," denying the trade measures are meant to pressure China.

"It will take some time before Sino-US trade issues are resolved, but they all boil down to the convergence of interests of parties concerned," Huo said.

The Chinese Ministry of Commerce has stressed the importance of Sino-US trade ties and urged US authorities to abide by WTO rules in its trade measures, noting China and the US should resolve differences "through dialogue and consultations."